Changes to Labor Laws for Workers from 2021

Know the changes that took effect from 1st April 2021 to the Labor Law but the Pandemic has taken a front seat The Labour Codes are already notified in the Official Gazette of India and the date of its implementation will be notified in the near future. It was expected that it would be notified from 1st April 2021 but it has not happened due to the 2nd wave of the Covid-19 Pandemic gripping the Country. However, once the pandemic situation eases a little, it is expected that the Government would fast track the implementation. The latest labour laws would be reducing the take home salary of the employees by increasing the HRA as well as the PF categories of the salary structure. Apart from that, the labour laws 2021 will also extend working hours to 12 hours a day as per the reports.

The labour ministry is ready with the rules for the 4 codes and mentions them when some states will be ready for the guidelines applied in their domain. Jammu & Kashmir has notified the rules, while Uttar Pradesh, Bihar, Uttarakhand, and Madhya Pradesh have placed draft laws for two codes and Karnataka has prepared rules for one code.

One of the biggest impacts of the new labour law will be on the take-home salaries, which is expected to reduce, owing to the fact that the government is eyeing increasing contributions towards provident fund (PF) and other post-retirement schemes. The new laws are expected to come into play soon, which will force employers to modify their employee compensations.

As per the Wages Codes 2019, wages that are paid to an employee include the basic pay plus dearness allowance (DA) and retention payment. Therefore, other remunerations such as PF contributions, bonuses, pension, HRA, gratuity, overtime, etc. are not covered under the definition of wages.

What is the new wage code?

The definition of wages has been changed in the new wage code, triggering a change in your salary structure.

Upon implementation, “wages” will include components like basic pay, dearness allowance (DA), and other special allowances while excluding items like House Rent Allowance, bonus, overtime allowance, conveyance, and commissions.

The new wage code says that these excluded items cannot be more than 50% of the total remuneration. If these exclusions cross 50% of the total remuneration, they will be added to the “wages” component. Your basic pay, DA and other special allowances (‘wage’) should be 50% of the CTC. This is your net monthly Cost to the Company (CTC).

Basic Pay to be 50 Percent of CTC

The new wages code makes it compulsory for organizations to make sure that 50 per cent of employees’ CTC is basic pay, while the remaining 50 per cent comprises other employee allowances, including house rent, overtime, etc.

If the company pays any additional exemptions or allowances that exceed 50 per cent of the CTC, the same will be treated as remuneration to be added to the wage.

“Basic pay structure is changing to 50% of your CTC or Gross Pay. This will significantly increase your PF contribution which in turn will impact your net take home pay minus taxes.”

What is changing for you under the new wage code?

There are three significant changes:

Basic Pay

Earlier, the compensation structure ranged from 30%-40% of the gross salary and the allowances made up the balance gets altered. Now, the basic pay has to be capped at about 50% of the employee’s CTC so that the allowances can be utmost 50% of the gross pay.

Provident Fund

Provident Fund was earlier calculated on an employee’s basic pay, considering the dearness allowance and other allowances offered by the organization. Employer and employee contribution will now be calculated on 50% of the CTC. This will increase your PF contribution but decrease your take-home pay.

How will the new wage code impact your take-home pay after-tax?

Your take-home pay might reduce, and the quantum will depend on the salary bracket you fall under. The impact is expected to be higher in lower salary brackets than the mid-and high-salary brackets.

For lower-salaried persons, the basic is not a significant component of the total remuneration which is not the case for those who earn more. In that case, there will be a higher rejig and reduction in take-home pay for those with a lesser salary.

Those with higher salary may already have high basic pay, close to 50% of the total remuneration.

Read more on Groww: https://groww.in/blog/how-will-new-wage-code-impact-take-home-pay-in-india/

Highlights of Payroll Software

However, no big changes in Payroll software due to the implementation of the new Labour Code. Users can easily set formulas as per their requirements or Company policy.

Payroll software is a Comprehensive & Powerful HR Tool for Calculation of Salary, PF, ESI, Professional Tax, Bonus, Arrears, Loans & Advances, TDS on Salary, Leave Management, Overtime etc. It is user friendly, flexible, single structure for all different slabs is helpful for the HR department and is very easy to use.